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Gerdau (GGB) Q1 Earnings Fall Y/Y on Low Sales, High Costs

Brazilian steel producer Gerdau S.A.GGB reported weak results for first-quarter 2016. The company's adjusted net earnings plunged nearly 94.7% year over year to R$14.2 million (US$3.64 million). The fall was triggered by lower revenue generation and higher financial expenses.

Talking about Gerdau's top-line results, net sales in the quarter totaled R$10,084.5 million (US$2,585.8 million), down 3.5% year over year.

Crude steel production in the quarter declined 4.3% year over year to 4.154 million tons, while shipments fell 7% to 3.851 million tons.

Segmental Details

A brief discussion on Gerdau's segmental result is provided below.

Revenues sourced from the Brazil BD (business division) accounted for 27.9% of net sales, down 18.7% year over year, while that from North America BD represented roughly 40% of net sales, up 12% year over year. The South America BD revenues constituted 12.2% of net sales, down 6.4% year over year. Revenues from Special Steel BD decreased 3.4%, comprising 19.9% of net sales.

Margins

Gerdau's margins suffered weakness in first-quarter 2016, with cost of sales representing 91.9% of net sales compared with 89.4% in the year-ago quarter. Gross margin was down 250 basis points to 8.1%.

Selling expenses, as a percentage of revenues, were 2.1%, while general and administrative expenses were 4.3%. Adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") were R$930 million (US$238.5 million), down 15.9% year over year. EBITDA margin came in at 9.2% compared with 10.6% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting first-quarter 2016, Gerdau had cash and cash equivalents of R$4,730 million (US$1,317.5 million), down 16.3% from R$5,648.1 million (US$1,426.3 million) at the previous quarter-end. Long-term debt decreased 11.9% sequentially to R$20,992.6 million (US$5,847.5 million).

In addition, Gerdau's net cash generation from operating activities decreased 1.6% year over year to R$929.1 million (US$238.2 million) in first-quarter 2016. Capital spent on purchase of property, plant and equipment totaled R$485.3 million (US$124.4 million), down 20.7% year over year.

Outlook: For 2016, Gerdau expects capital expenditure to be R$1.5 billion, down 35% year over year.

Gerdau, with a market capitalization of $3.4 billion, currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include ArcelorMittal MT , POSCO PKX and Universal Stainless & Alloy Products Inc. USAP . All these stocks hold a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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